A Digital Bank with non-Digital Priorities

“We have a solution where customers can upload documents, we have a website where people can apply online. But part of the dialogue, obviously, is dialogue — we want to be able to talk to our customers face to face, where they can actually explain and bring their business to life beyond dry numbers that you can input online.”

Insightive.tv: What is the scope of digitised customer contracting at Oak North, and how has it played into your business model?

Francesca: Customer contracting is a very broad statement, and therefore we need to look at it in the light of the different products. We are a bank for growth businesses and entrepreneurs — these clients are the core of our business. We also offer the opportunity, both to the entrepreneur, and the public more generally, to deposit money with us, which we then use as a source of funding for our lending business.

So we have a two ends to our business, and because they are quite different in nature, the customer contracting reflects that difference.

Things such as credit checks, validating records — of course, that’s all automated because it doesn’t add any value to do it manually. But things such a credit assessment — we want to do that face to face. The business owners and entrepreneurs we lend to constantly tell us how much they appreciate the fact that they are given the opportunity to meet Credit Committee and pitch to them directly. So we cover all the factors, depending on what is fit for purpose.

For deposits, things are slightly different because there we are in a more standardised part of the business — with processes that are highly regulated. Manual steps would just slow down this process without adding any tangible value. So in these instances, you can apply online, and unless you have a question or there are exceptions, you are approved online within minutes and you can make the entire interaction digital.

We also have a call centre, because some of our customers prefer a human touch. But we find that many of them want this process to be automated. Because we want to cater to our customer’s needs, we make both options available.

Insightive.tv: What is your biggest priority when it comes to digitisation?

Francesca: I feel very strongly that technology should be enabling and not limiting.

I know it sounds a bit cheesy, but we want the best of both worlds. We are very aware that we deal with humans, and therefore, we want to be able to serve them and really give them the best and get the best out of them. With entrepreneurs, it’s their personalities, their drive that got them to where they are — they want to explain their business and we want to listen. It’s not only about the numbers, it’s about the people driving the business and understanding the business.

On the other hand, we are not just about holding hands. We were the first UK bank in the cloud. A lot of people talk about digital enablement — but a lot of other banks are still in traditional data centres.

We are not positioning ourselves as a tech company. We are a bank that is digitally enabled. And I think that is a fundamental difference between us and some of our competitors. From our perspective, it’s about serving our customers in the best possible way. If I look at the future, I would not say that we would ever go completely digital. To me, the reason why you can’t do that is that then you can only offer a very constrained proposition — you become, literally, a computer bank with all its limitations. If your customer does not fit into the digital process, and you don’t have a manual process where someone can amend the system to suit the needs of the customer, I don’t believe that this would be a valuable position.

One of the USPs that our borrowers appreciate most is the fact that they get to come in and meet the Credit Committee. This transparent process, compared to the opaque process found at many other banks, can often be the make or break aspect that leads them to choose us over incumbents. They like that it’s a combination of technology — which enables us to make decisions faster (we tend to complete deals in a matter of weeks rather than the months it takes larger banks) — and face to face.

We use the technology as a means to really serve our customer in the best way. And this is why we have made some technological choices that are maybe more at the forefront than some of our competitors. It is also why we haven’t kicked-off other initiatives that I would say are a little more gimmicky than really delivering the customer value such as needing to scan your face or fingerprint to enter your account.

So we have a solution where customers can upload documents, we have a website where people can apply online. But part of the dialogue, obviously, is dialogue — we want to be able to talk to our customers face to face, where they can actually explain and bring their business to life beyond dry numbers that you can input online.

We take a much more holistic approach that requires a broader set of channels, and we use these different channels for different parts of the process.

Insightive.tv: Do you use third parties to maintain and build your digital systems?

Francesca: We stick to what we do best while leveraging the technology that is out there. As I said, we are a bank which is enabled by technology, not a technology company.

We provide the glue that holds the technology together, but by and large, we tried to get the best-of-breed technologies from companies that are not as evolved, so that we can grow together with them and they can then build the things that are relevant to us.

Our core banking platform is a company called Mambu, which is a German company, and we are their first UK banking client. So we really worked with them to develop the banking proposition which was compliant with UK regulation and prioritising the product features that we want to offer to our customers. We also worked with other partners to develop an integrated bank in a box, which is quite unique. With the Cloud, we use Amazon Web Services.

Insightive.tv: How important are the operational efficacy of digitisation to your business strategy?

Francesca: We are a company at the end of the day so of course making money and increasing efficiency is high on our agenda. But the bottom line has a lot of dimensions: if you just aggressively drive managing costs without having a very keen eye on customer service and value proposition, you will have a short term view that will not serve you well in the future.

I am a big believer that we should scale the balance sheet, and that it should not drive a linear scale up in the organisation. And the only way to do that is to digitise and automate. So anything that does not require making complex choices and value judgments we might completely automate it. I want people to do interesting jobs, not something that a computer could do more quickly.

It’s all about added value. If you look at customer feedback, they do mention that meeting the Credit Committee is one of the highlights of their experience — I have no ambition to digitise that because it would be diluting our value proposition regardless of efficiency.

Insightive.tv: Do you see other digital benefits that are often overlooked?

Francesca: We were the first UK bank to be fully in the cloud. And, obviously, the way to move into the cloud is to exploit the technology that is out there. We made this choice for several reasons. We can experiment in a way you can’t with a normal infrastructure. We can scale up and down and we can benefit from the latest technological developments. It gives us geographic scope, allowing us to offshore while still benefiting from the same infrastructure. And we think that gives us a very tangible benefit. Part of that is cost, but all of this translates into feeding services to customers in an agile and flexible way. This ability to quickly come to market with innovations is something that I think many of our competitors are unable to do.

We didn’t have an inhibition of legacy. We have had the luxury — although it hasn’t always felt that way! — to build from scratch, and therefore, have created something that we believe is very fit for purpose and really allows us to plug in whatever we think is important at speed.

Cloud was an amazing opportunity for us because it means we can be closer to the market and more importantly, design a system where we won’t develop any legacy processes. The cloud is just much more cost effective. The benefit with AWS, particularly, is that they are very flexible, they let us choose what we want to use and pay for it now, rather than paying in advance for something we might use in the future.

Insightive.tv: Do you see large changes in the future of banking and/or Oak North?

Francesca: I would be amazed to hear anyone say they don’t see it changing. Inherently, in the environment that we are in, there are so many avenues for change that they are hard to avoid, and so many opportunities! There are a huge number of imperatives that come from the outside world that drive change.

Internally, we are a very young organisation which means that as we grow — in terms of product, scope, customer portfolio — we will need to continue to adapt and change to optimise. Otherwise we will end up being sub-optimal in terms of where we are today. In terms of the world and where it is going, I strongly believe it will become increasingly digitised and therefore we will enhance our digital profile. It is hard to tell you exactly what this will mean because I do believe that in three years, there may be some new technology that we don’t know of today.

What I can tell you is that we are committed to change. We do a lot of market camps, we stay open to what is out there. So do I see digital enhancement — yes. Do I know what the world will look like in three years — no.

Insightive.tv: What do you see as the largest barriers to further digitisation?

Francesca: I don’t know if ‘barriers’ is exactly the word I would use. I think that there are a number of considerations. One is customer acceptance. We don’t want to be too far ahead of our time just for the sake of being ahead of our time because all you end up doing is curbing your market.

Other considerations are regulatory. When we got our licence in March last year, we were speaking to the regulator and we said that we wanted to come to market with our core systems on the cloud. They said that we could not do that because there was no regulation for it. So it took us about 6 months after we began trading to move fully into the cloud. So, if you are at the cutting edge, regulation can become a barrier, or a challenge, simply because you are entering unknown territory.

But we are ready for the challenge. It took us less than three months to build our bank in the cloud and I don’t want to sound arrogant, but that’s pretty darn good!

Francesca Gandolfo joined OakNorth as Chief Operating Officer in August 2015. She has previously worked for Barclays and Citigroup.

Oak North is a cloud-based challenger bank headquartered in the UK. It specialises in entrepreneurial business lending and prides itself on being as fast-paced and nimble as its customers. Oak North began trading in 2015, became the UK’s first bank to operate solely in the cloud in May 2016, and recently broke even less than a year after launching.